Why is the stock apparently under‐valued?There are reasons to...

Why is the stock apparently under‐valued?

There are reasons to explain the discount to peers and low market value.

 RLE is a “single asset” company, dependent on the success of the Windorah trough project. There are

no other assets to support asset valuation, should flow rates be uneconomic. Frankly we doubt low

rates from one or two tests would scuttle the project, as RLE would likely seek to drill more wells and

gain more data, but this all costs money and investor confidence would likely diminish.

 Testing of the Tamarama#1 well while establishing gas flows to surface, was accompanied by water

that killed the flow, which leads to the question, was it the geology or the drilling‐completion that

produced the water ? Testing on T2 & T3 is designed to address this.

 Lack of financial headroom to move into a larger development. RLE will need funds to undertake

development activity in 2019, and so all of the funding options outlined here will need to considered

and resolved. Despite very encouraging results to date, RLE has had to work hard to attract equity

capital and the most recent issue was done at a steep discount to the prevailing market.

 The “basin centred gas play” (BCG) is unique in Australia because no other company has attempted

to exploit this type of geology to date. In our experience, it is analogous to the exploitation of coal

seam gas rocks over 15 years ago. The first companies to attempt CSG in Australia were shunned by

the investment community. Not one learned academic or market commentator predicted what was

to come. Today, production from coal seam gas fields dominates eastern Australian production. It

can take a long time to over‐turn accepted geological norms and RLE will have to do this.

 The equity market is ascribing no value to RLE’s ~5Tcf of prospective resources, which could be

converted to 3C or 2C. We note that some peers report multi‐Tcf resources (eg GLL, COI) which are

attracting value, and relative to these companies, RLE has a smaller 2C/3C and hence a lower value